Guaranteed Loser Revisions

4/29/2015

You've bought a lottery ticket or two in your time, right? The Powerball jackpot hits a kajillion dollars, and you realize you really can't win if you don't play. So you buy a ticket or two just to nurse that fantasy of champagne wishes and caviar dreams. Forget the reality that most lottery players never win, and the winners who do make headlines seem to go bankrupt faster than a professional football player who tears his ACL two games into his rookie season.

Most people who buy lottery tickets really do want to win. In fact, a 2006 study revealed that 21% of Americans believe playing the lottery is their best bet for financing retirement! But would you believe there's a small group of Americans who pay top dollar for losing tickets? Why on earth would anyone ever do that? The answer, not surprisingly, lies in that financial cancer that we lovingly refer to as the Internal Revenue Code.

Start with the premise that gambling winnings are taxable income. That makes perfect sense, of course; the IRS doesn't really care how you make your living as long as they get their share. And that stinks. Sure, winning a hundred million sounds like a lot, but you're lucky to be left with half of that after you take care of your Uncle Sam and all those greedy relatives who show up with their hands out as soon as they hear you've won.

The good news is that you can deduct your gambling losses from gambling winnings before the IRS takes their cut. You don't even have to net out your totals by contest; you can deduct casino losses against lottery wins, and vice versa. However, deducting gambling losses creates its own problem. The lottery commission, casinos, and racetracks where you do your best "work" are happy to send the IRS a Form W2-G reporting your wins. So, how do you show an auditor how much you lost?

That's where the losing lottery tickets come in. Just hop onto a website like Craigslist or eBay, and look for folks selling – or even renting – losing tickets! The sellers might try to disguise them as "memorabilia," but we know what they're really for. The Daily Beast even found one bold seller getting rid of $10,000 in losing tickets for the bargain price of $500.

If you want to know what sort of financial genius cooked up such a great scheme, look no further than Henry Daneault, an accountant once employed by the IRS! In 1985, his client, Phillip Cappella, won $2.7 million in the Massachusetts Megabucks. When tax time rolled around, Daneault and Cappella made up $65,000 in gambling losses to erase $20,000 in tax. When Daneault’s old employer, the IRS, came sniffing around, he paid $500 to rent $200,000 worth of losing tickets. Had it worked, this might have been a great idea. Sadly, it did not, and both Daneault and his client plead guilty to “charges of federal income tax conspiracy,” resulting in prison time for Daneault, and home detention, as well as hefty fines, for Cappella.

We are the largest and fastest-growing audit defense service in the country for taxpaying individuals and small businesses. TaxAudit has more than 9 million members and handles more audits and notices than any other firm. TaxAudit offers IRS, CRA, and state taxing authority audit representation – at a price point any taxpayer can afford.